Mortgage calculator: is it better to rent or buy?

If you have slipped into arrears, you will not necessarily lose your home. There are steps that you can take to stay in your property and clear your debt.

Here is Times Money's step-by-step guide to avoiding repossession.

Step 1: Contact your lender

If your circumstances change, such as losing your job, contact your lender immediately. It might be willing to offer a repayment holiday of two or three months, which will give you the breathing space to make alternative financial arrangements. It may also be happy to switch you an interest-only deal to lower your monthly repayments.

Under Government rules, lenders should consider lowering your monthly costs temporarily or increasing the length of the loan term, which would also shrink the monthly payment.

Step 2: Work out a budget

Debt charities, such as the Consumer Credit Counselling Service (CCCS) or the National Debtline, can help with a budget plan to use when renegotiating the terms of your mortgage.

Francis Walker, of the CCCS, suggests that it can be better to seek help from a debt adviser before approaching your lender with a proposal. She explains: "We often find that borrowers set up an agreement with a lender and then find that it is unaffordable. Customers are likely to say what they think is acceptable to the lender rather than what they can afford."

Step 3: Find out if you are eligible for Government schemes

The Homeowner Mortgage Support Scheme allows borrowers who have experiences a sharp drop in income to defer the interest payments on their loan for up to two years. There are various conditions attached to the scheme, which is only available through a limited number of lenders.

If you are unemployed, you can claim the interest on your monthly repayments through the Income Support for Mortgage Interest scheme. Individuals need to wait 13 weeks after losing their job before making a claim. The threshold on the size of mortgages included is £200,000.

Meanwhile, Mortgage Rescue offers help for only the poorest and most vulnerable households that can no longer afford their mortgage repayments.

To find out more about the schemes, contact a debt charity, Citizens Advice or your lender.

Step 4: Prioritise your debts

The most important thing is to stay in your home, so your mortgage repayments should be paid before other unsecured debt, including personal loans or credit cards.

If you need to stop paying these debts temporarily, write to the loan or credit card company and explain your financial situation. It may be willing to suspend repayments if you can prove that you will be able to start repaying the loan again in the future. You should also cut out unneccessary expenses, such as satellite TV subscriptions or club memberships.

Step 5: Do not be bullied by your bank

If you have missed one or two mortgage payments, it is likely that your lender will have been in touch to talk about your financial situation. Lenders can apply pressure on borrowers to pay arrears quickly - and the failure to do so has been used as grounds for repossession.

However, Beccy Boden Wilks, of National Debtline, says that you will not be evicted if you can demonstrate that you can afford to make monthly repayments and a small amount of the arrears each month. She adds: "Your lender might push you to clear arrears in 12 months, but ask if you can spread the cost over the term of your loan."

You could also ask about adding missed payments to the loan, which is known as capitalising your arrears.

Step 6: Be wary of sale-and-leaseback

Speak to a debt charity or financial adviser before considering sale-and leaseback schemes, which are unregulated. This would involve the sale of your property to a company that would then keep you on as a tenant.

You could also contact your lender or local housing association about mortgage rescue plans, which work in a similar way to sale-and-leaseback.

Step 7: Attend all hearings

If you do miss a number of monthly repayments, it is likely that your lender will write to you with a date for a repossession hearing.

It is crucial that you attend, says Ms Boden Wilks, because if you can demonstrate to the district judge that you are able to make your basic repayments, the judge will support your case.

However, if there is no way that you will be able to afford your monthly repayments, request that you are given time to sell the property yourself.

Five news stories

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CML reduces forecast for home repossessions

Courts failing borrowers in arrears

Five features

When is the right time to get back on the property ladder?

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Leaving a fixed deal could save you money

Five websites

Citizens Advice

National Debtline

Consumer Credit Counselling Service

Financial Services Authority

Council of Mortgage Lenders